Articles Posted in Wire Fraud, Mail Fraud, Tax Fraud and other Federal Fraud Cases

In some areas of the country, substantial numbers of single family homes fell into foreclosure. In other markets, large numbers of condominiums suffered wholesale foreclosures. People purchased homes for inflated prices borrowing up to 95 to 97 percent of the purchase price, acquiring creative mortgages with low teaser rates or balloon mortgages. In a booming real estate market buyers felt confident their purchase could be sold within a year or two for a profit. With the collapse of the real estate market, large scale mortgage foreclosures put many banks under or near the brink. As auditors and investigators began examining the loan documents, they found many cases of borrower fraud. Real estate fraud gained top priority in the Department of Justice following the fall in the real estate market.

A mortgage fraud investigation begins by focusing on the mortgage application, a form known as the Fannie Mae Form 1003 (Uniform Residential Loan Application) a standard form for all banks. It presents the borrower’s financial statement and informs the bank of the borrower’s income, assets and liabilities. When properties fell into wholesale foreclosures, auditors and investigators poured over mortgage applications finding inflated numbers. Mortgage fraud investigations found inflated income or in some cases non-existent jobs and income. Fraudulent application might show a nonexistent bank account. In some cases a borrower might falsely state the house would be the borrower’s primary residence, thus qualifying for a lower interest rate and seen as a safer risk. The false financial information in the 1003 Form was important to the bank’s decision to lend money to a borrower, leading the bank to conclude the borrower qualified for the loan. This made it a federal crime because it is federal crime to present materially false information to an FDIC insured institution.

Banks did not escape blame. Accusations were made that banks’ lending practices facilitated fraudulent loans. Some banks offered no documentation loans which did not require backup documents, commonly tagged “liar loans.” Accusations against bank officers claimed they turned a blind eye to obvious fraudulent borrowers by not carefully verifying the financial information submitted in a loan. While the bank practices do not excuse the crime of making false statements to a bank, the booming real estate market and the easy money, created a fertile soil for rampant fraud. As a result, ordinary law abiding citizens turned into criminals.

A bankruptcy trustee is a private individual, usually a C.P.A. or with similar financial expertise, who is appointed by the U.S. Trustee in Federal Bankruptcy Court and given the job of safeguarding the assets of a bankruptcy estate. The job includes collecting the assets and property belonging to the estate, keeping detailed and accurate records of all funds received and disbursed, and making regular reports of financial activities during the estate administration. It is a job that requires a person who can be trusted with an enormous amount of money. Unfortunately it did not work out that way for Marika Tolz, who had been a trustee for the Miami Bankruptcy Court for over 20 years. For the past seven years, she and other coconspirators regularly dipped into funds from bankruptcy estates to which she had been appointed as trustee to safeguard, and used these funds for her own benefit. On May 5, 2011, Marika Tolz pled guilty in Federal Court in Miami to a one-count information charging her with committing Federal wire fraud in violation of 18 U.S.C. Section 1349. The wire fraud statute is commonly used in prosecuting Federal white collar crimes.

After taking out funds from one bankruptcy estates, she would continue to misappropriate funds from other estates to restore the balance of other fiduciary accounts from which she had previously removed funds. In one specific transaction on May 20, 2010, Tolz caused a one million dollar wire transfer from the Bank of America Trust Account of Buchanan, Ingersol, and Rooney PC into the Sun American Bank Marika Tolz General Trust Account. These funds had been earmarked as forfeiture proceeds for the victims in the Scott Rothstein Ponzi scheme in Florida (United States v. Scott Rothstein, 09-60331-cr-Cohn). Those funds were instead used by Tolz to cover a previously issued $967,856 check and replace monies taken from the Driscoll bankruptcy estate.

Losses from this fraud totaled about $2.4 million, while at least $16 million was misappropriated from numerous matters to which she had been appointed as trustee, to cover the previously removed funds. Sentencing is scheduled for July 27, 2011 before U.S. District Judge Jose Martinez. The guilty plea was reported by Ina Paive Cordle, a writer for the Miami Herald.

Three additional individuals were charged in West Palm Beach Federal court in a federal mortgage fraud indictment, making 24 the total number of persons who have been indicted in the multi-million dollar Versailles mortgage fraud scheme. Carl Alexander and Carol Asbury were the two most recent persons indicted. Alexander headed up a firm known as PTL Housing & Investments which purchased homes in the upscale Wellington community called Versailles. The indictment charges a violation of the mail fraud statute, 18 U.S.C. §1341, a statute commonly used in white collar criminal cases.

Alexander, one of the most prominent players of the defendants, had two personal bankruptcies and a foreclosure filing when his company secured a $1.05 million home in Versailles. According to the federal criminal indictment, Alexander was in charge of recruiting buyers, usually people of modest means to serve as straw or bogus buyers who were paid anywhere from $700 to $15,000 to purchase a home to have homes purchased in their own names.

Fraudulent closing documents were prepared by a real estate broker David Lam and Asbury concealed the fact that lenders were loaning more money than the actual price of the home. The three defendants pocketed the difference between the loan and home price, an amount estimated at almost $1.8 million on the sale of four homes. Six others have been charged in recent weeks in connection with the Versailles mortgage fraud, including former pro football and University of Florida player Patrick Brinson.
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Schmitz was an Alabama State legislator convicted of the Federal crime of mail fraud and theft of federal funds. The mail fraud statute (Title 18 USC §1341) makes it a crime to use the mail to advance a fraud. The theft statute (Title 18 USC §666) makes it a crime to embezzle, steal, or otherwise obtain federal funds by fraud. The government presented evidence that Schmitz used her state legislator position to obtain a job with a federally funded program for at-risk youth (“Program”) and performed little or no work during her employment. To conceal this scheme, she wrote letters to obtain a flexible work schedule, submitted false statements about the number of hours she worked and the volume and nature of her work.

The Eleventh Circuit Court of Appeals found this white collar defendant used her position as a legislator to have he job specifically created for her, rarely showed up a the office, and failed to complete tasks given her. She wrote a letter requesting a flexible work schedule allowing her to work from remote locations and preventing her supervisor from knowing how little she was doing. She submitted fraudulent reports about her work hours and work activity. The court found she never intended to work at the program and used her political connection to keep the pay for no work scheme going.

The indictment charging theft of federal funds was insufficient to put defendant on notice of the offense. The court found the allegations in the indictment were legally insufficient because they simply alleged that she was an agent of the Program which received federal funds and that she knowingly and willfully embezzled, stole, obtained funds by fraud without any factual allegations of the fraud. It failed to incorporate or re-alleged the mail fraud counts. The court found the counts were insufficient because they provided “absolutely no factual detail regarding the scheme to defraud the Program.” The verdict was thrown out because the jury relied on a legally insufficient allegation to convict the defendant.

Cross examination by prosecutor pressing the defendant to give her opinion of whether other witnesses who gave inconsistent testimony were lying was error. The defendant took the stand. On cross the prosecutor pointed out that her testimony conflicted with several of the government’s witnesses and pressed her to answer his question “were they lying?” In closing the prosecutor continued to refer to the list of lying witnesses. The Eleventh Circuit found it was error to ask the questions for these reasons:

• the Federal Rules of Evidence do not allow for a witness to say another witness was lying in another occasion,
• it invades the province of the jury to decide this issue,
• the question ignore the other possible explanations for inconsistent testimony – memory loss, difference in perceptions, genuine misunderstandings that have nothing to do with a deliberate intent to deceive.
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Defendant Tommie Huff was convicted of bribery and conspiracy to commit wire fraud for his role in a kickback scheme that involved placing fraudulent orders for Robbins Air Force Base. Wire fraud is a federal crime make it an offense to make a false statement or misrepresentation using the telephone, fax, or computer in an attempt to acquire money or something of value. It is also a federal crime to bribe or take kickbacks from a federal employed to secure a government contract.

The defendant argued on appeal there was insufficient evidence of a single conspiracy because the government failed to prove any interdependence between him and his co-defendant Steve Deason. He argued that the evidence showed there to be multiple independent “hub and spoke” conspiracies with no evidence connecting the two codefendants in a single conspiracy.

The appellate court’s opinion, written by Judge Barkett, rejected this argument and found that all codefendants shared a common goal and worked in concert to defraud the government for personal benefit. The coconspirators abused their position as government credit card holders by placing fraudulent orders with suppliers and all coconspirators personally benefited from the scheme by receiving kickbacks in cash and merchandise. Both Huff and Deason placed orders to the vendors that they knew would not be filled and paid for the orders using government credit cards.